The mining industry is keen to migrate to cost-reflective tariffs

ZESCO Muzuma substation being upgraded to KV 330 (from KV 220) in order to be connected to the national grid as soon as the Maamba coal plant station is commissionedZAMBIA’S major electricity consumer, the mining industry, is keen to migrate to cost-reflective tariffs due to a realisation of the negative impact on its’operations when supplied with restricted power.

It is understood that Zambia provides the lowest tariffs at about six US cents per kilowatt-hour (KhW) compared to regional and international average of above 15 US cents per KhW.

In view of this situation, Government, in the 2017 budget, announced plans to introduce tariffs reflecting the actual cost of producing electricity by year-end.

Minister of Finance Felix Mutati also made it clear that tariff reforms should be accompanied with improvements in the efficiency by Zesco Limited, and further directed the Industrial Development Corporation to carry out a situational analysis to determine viable options that should be taken at the power utility.

In an interview last Friday, Zesco Limited managing director Victor Mundende said there is need to allow electricity to be traded as a commodity that subscribes to the dynamics of market forces.
“Other variables have been rising or changing, but the price of electricity has remained static for many years. We buy power from Maamba at 10 US cents per KhW but sell it at six US cents per KhW. Surely, how can you run a business in this manner?

“We are making progress on migrating to cost-reflective tariffs, and we are happy with the support from Government, and also, the major consumers-the mines-are keen to migrate, and this is encouraging since there is a realisation that we will all sink as an economy if the current structures are maintained,” he said.

When asked how Zesco intends to arrive at the tariff structures, Mr Mundende said the company will look at the financial models of individual mines.

“Other factors will also be considered, for instance, some mining firms operate underground while others are open cast. Some don’t smelt or refine while others are involved in de-watering.
“So we cannot apply a standard tariff but we will look at the needs of each client,” he said.

Recently, Zambia Chamber of Mines president Nathan Chishimba said knowing the true cost of producing electricity efficiently is the first step to cost-reflective tariffs.

“The mining industry has never shied away from the reality of cost-reflective tariffs. We are business people who are committed to tariffs that reflect the cost of providing electricity in an efficient, transparent and internationally competitive manner,” he said.